Well, I think sequels are a non-factor to be honest. Gaming has increased by leaps and bounds recently, and the whole "sequel-itis" problem has been there all through it. I think new IPs are going to help the situation, but not by bringing in entirely new customers.
I think Japan's biggest problem is, and always has been, keeping too many things Japan exclusive, OR releasing games in the US in such limited quantities that they are almost like ghosts on the market to minimize their risks.
There is nothing wrong with JRPGs for example, I think those who complain about them, are mostly complaining because it's not their genere and they feel that the time spent in releasing them could be spent in creating another shooter or whatever. This is the root of "genere wars" since only so many games can be translated/released at any time. People tend to feel that they need to attack the kinds of games they personally don't care for, so that more games of their genere of choice will be created.
At any rate, I think the big problem with JRPGs has been that a lot of the best titles never make it here. "Super Robot Taisen"/"Super Robot Wars", "Namco X Capcom", Soul Hackers, The Japanese "Wizardry" series, and tons of other games have simply never seen a US release, despite interest. This can also apply to a lot of fighting games and the like as well.
When we do see a lot of releases, it's again like a ghost a lot of the time. Your only chance of landing one of these games is to know it's coming out ahead of time, and hopefully getting a pre-order in. There is little or no advertisement or pre-release hype, as well. A lot of these games wind up becoming super-collectibles as a result where people hearing by word of mouth that a game is good, might have to pay three or four times the initial cost to get a copy through the collector's market. Rarely we'll see a re-release of a popular game like "SMT: Nocturne" or "Disgaea" that explodes in the shadow community, but that's rare, and by that point the games have aged and the interest has often (but not always) reduced.
Japan also has an issue where games that DO make it to the US audience see a release as much as a year or two after the game first comes out. This ultimatly means that when your looking at a lot of Japanese titles they are going to compare unfavorably in terms of graphics and the like to other new releases. "OMG this game looks like something from 2006" a gamer might proclaim in 2010, and the thing is that they might very well be right since we have seen games take that long to finally see a US debut.
I'll also say yet again that I think a lot of the problems are ultimatly a matter of racism. While a lot of people don't like to hear it. I went through a phase where I was pretty interested in reading translated Japanese magazines to keep up with nerd-culture over there. A recurring theme I noticed with both Video Games and Anime was simply that the Japanese base over there seems to feel that a US release/translation of a product cheapens it. Customers in many cases claiming that they will not buy a product that they know is going to see release in the US, wanting things to remain "Japan Only" and kept just for themselves. This most notably seemed to be the case where "Final Fantasy X" was turned into perhaps the most epic troll of video game history by not seeing the final chapter answering all the questions released outside of the US (It's called "Final Fantasy X: Final Mission"), I honestly think that bit is what tanked "Final Fantasy X-2" since few people wanted to play a game knowing they weren't going to see the actual end of the story. The second most epic troll was probably connected to the same game/series when an "International" edition was released to pretty much all countries except the US with expanded content and increased difficulty levels (International indeed!).
Japan is really good at making excuses for the lack of US releases, either due to not wanting to fight against censorship, or nonsensical arguements about liscencing fees which don't hold up to scrutiny given that just to make those games these had to have been dealt with (and let's be honest, any property introduced to the US market even indirectly has some chance of catching on and seeing more sales, racism and keping "things to ourselves" is a big motivation here).
The bottom line is that if Japan wants to start making more money in their game industry, why not you know... actually release games simultaneously to the global community when they are new. What's more instead of saying "wow, this is an awesome game, let's keep this to our own fans", perhaps releasing those games to the rest of the world will ALSO result in more money, I mean it's a novel concept, but it might result in the Japanese industry not getting clobbered by *mostly* pitting outdated second rate games even in their own market against the best rival developers can produce. When Japan was ahead of the curve they could sort of get away with that, but now that people have caught up, it's time for some humble pie and to put their best up against the best the rest of the market has. The old maxim of "it takes money to make money" also applies, in this case one thing Japanese developers are liable to need to do is invest money in PACs (Political Action Comittees) and Lawyers, and actually fight against censorship policies internationally (as well as domestically nowadays), as opposed to backing down since capitulation isn't going to result in more money than fighting.
As a side note, I think that one of the things that is catching up with the game industry is their refusal to fight against censorship. Even in the US it literally took until the 11th hour for the gaming industry to mount any kind of a signifigant defense (the current Supreme Court battle), in other countries it seems even worse. Japan's recent "adult content" woes seem to me to have occured largely due to half-arsed opposition, with very little counter campaigning in any kind of a public sense. Like in the US you saw tons of politicians buying air time to talk about the crisis, but very few people from the games industry doing the same kind of thing to produce pro-video game/free speech messages to also reach the mainstream. If your not a gamer, you probably didn't hear a lot of the counter-arguements in any official seeming capacity because they just weren't made publically.
As a result, the games industry is making less games that people want to play, especially the increasing number of older gamers who are now a market force. It's not surprising that the Japanese industry is one of the first to feel the shockwave (both from domestic and international causes) because they produce a lot of the most "extreme" and "mature" games that aren't intended for children. People recognize when things are being watered down or made "politically correct", and it's not surprising that market goes elsewhere, or stops buying games entirely if they aren't having fun with it. It's sort of like running a bar in a place where there is a law regulating water to alcohol level (which has ironically happened, but rarely lasted), a lot of people are going to go elsewhere, or if they can't stop drinking because simply put having a shot of whisky loaded as a "double" to include the required amount of tap water as "filler" to help prevent public drunkeness kind of defeats the purpose of ordering a shot of whiskey. The same applies to "Mature" games without "Mature" content.
